Well I profoundly agree to disagree!
I profoundly disagree with this and think blaming low interest rates and lending standards for this boom will cause you to miss some of the actual factors that drove the boom. The factors you mention, particularly the lower lending standards, came in much later and have helped the banks keep the ball rolling and have probably turned the situation into a Ponzi scheme we see now...but at the beginning it wasn't this.
But seriously I do agree that there were some fundamental reasons for the start of the boom, I'm not saying houses were not undervalued in the late 90's they were a good buy, add to that halving of capital gains tax, a growing economy with stable inflation, and a shift of money away from equities to real estate after the tech boom.
However I would debate that part of the initial spark for the worldwide appreciation in real estate was lit by easing fed policies throughout the world in response to the tech bust and subsequently september 11 (specifically the US) - Note that the RBA decreased the cash rate by 2% in 2001 when house prices were already running very fast
Initial fundamentals were amplified by easy fed policy (that assumes house price appreciation is not inflation) and continued to be facilitated through easy lending (in late 2002, 2003) and competition to lend people money since then.
Prices can be bid up through transactions of a relatively small % of houses (even if they are bid up on fundamentals) which requires little money, but over time they have to be supported by the weight of the whole market - this requires a lot of money, which is currently being funded mostly by debt (not savings or income)
And if you want to talk about low lending standards, take a look at how Steve McKnight made a fortune in the late 90's early 2000's lending to people that the banks refused to give credit to at 2-3% above the fixed bank rate. I believe low-doc loans arrived in response to "wrappers" like McKnight, BTW, but thats another story.
I Agree with this. Banks have been overly conservative in the past, I assume partly in response to some of them almost going bust in 1990's. However I believe the worm has well and truly turned the other way at the moment. S McKnight made his furtone buying undervalued (on fundamentals) property and watching them appreciate - wrapping helped the cashflow and accelerated the process... he is a very good investor
Children of the baby boomers reaching some level of maturity and entering the work force and then buying houses started the property boom back in the mid-to-late 90s.
Well I'm a child of a baby boomer but I was in my early to late teens at that time - and wasn't buying??
People say that through supply/demand economics population increases ought to drive house price rises. But we also know that our population hasn't doubled when house prices did. What can and I believe did happen is that the internal demographics of the population changed around the mid-90s. The 2.3 kids that each baby boomer produced became 2.3 extra property owners. This is a situation of supply outstripping demand. Yes, interest rates made the fruit low enough to pick, but it wasn't the core driving force.
That assumes each baby boomer kid buys a house by themselves (currently not happening amongst my peers) and does not shack up with other baby boomer kids (in marriage) to form a two person household??
Don't agree with this - population growth provides the fundamentals for a specific house over time to increase faster than wage growth (as the status of the house changes over time due to expanding city). If population growth didn't occur then fundamentals would be supplied by wage increases and/or decreasing hosuehold density.
Demand for quality houses is always there, price is what limits people on an average wage not to buy on Sydney Harbour. The fruit always gets picked, just depends what price it gets picked at.... interest rates and lending policies are allowing fruit to be picked at a price (whether that is good for the people doing the fruit picking or not).
Then you have the PC and Internet revolution making many people very rich. Low interest rates also encourages money out of savings into investment or consumption eg. buy a new PC, a big screen TV, the new Commodore, house to live in, an investment property etc. "dotcom" was a bubble in the end...but there was also real actual wealth created. Hard to differentiate the two or even determine the proportions, but it was real. Income, therefore, also drove property prices into the late 90's and early 2000's. In inner and middle suburbs initially, where the IT consultants, and the business owners and the finance people lived...then the outer suburbs and apartments when they all started buying investment properties to save tax (remember, the 48.5% tax rate kicked in at $50k back then...you had to invest in property or give away nearly half your income in tax).
Agree, so fundamentally you're saying wage and income increase (+ employment growth) allowed people to bid up prices. The funny thing is real average wages have gone nowhere for a long time
Then you had income tax cuts, a rising share market, skilled labour market shortages due to commodity price led mining boom, and subsequent wage increases in many core and ancillary industries...all this means more disposable income in the hands of people who want to buy property.
Agree this has kept it going (especially at the high end). But again on average this is not being reflected by significant average household income growth
With standard variable rates up around 8% in Australia surely you have to find a few more good reasons why property is still going up??
Well in a word.... on average..... increasing volumes of
debt
and 8% home loans in a historical sense are still very cheap...
IMO
TJ